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Old Oct 5, 2013, 09:06 AM   #1
ElectronGuru
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Why doesn't health insurance work as well as other insurance?

With everything going on nationally, there are several active threads going on the subject of health coverage. And with so many excellent posts, I'm learning a lot, but there's one question I've not been able to parse.

There are many kinds of insurance, auto, life, home, travel, weather and they all seem to work pretty well. People pay in and when something goes wrong, companies pay out. There are hassles here and there with claims certainly, but overall things seem pretty smooth. But something seems to happen when it comes to covering health.

To be clear, I'm asking a functional / operational question, not why changes to the system are controversial. Why can't businesses and customers participate in a way that everyone gets what they need? What is it about other insurances that allows everyone to get their needs met and why doesn't that carry over to health insurance?
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Old Oct 5, 2013, 09:30 AM   #2
ChrisWB
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ElectronGuru,

The short answer is that health insurance covers specific conditions rather than blanket treatment. Health insurers are allowed to decline payment for treatment for a large number of reasons including:

Pre-existing conditions. Have you gone to a doctor for a headache in the past five years? If so, your insurance probably won't cover any head trauma, strokes, migraines, etc.

Preventative medicine and tests. Do you have a strange lump on your arm that keeps growing and changing shape or color? Insurance probably won't cover an MRI or a biopsy to determine if it's cancer. You'll have to wait until you're hospitalised, likely in the emergency room, before your insurance will deem that the treatment is necessary.

Here's the kicker: if you go to the doctor for that lump, your insurance company will remove cancer treatment from your insurance policy when you renew. After all, it's a pre-existing condition.

Insurance companies can state that they will only cover the least expensive form of treatment, as opposed to the most effective form of treatment. Do you need chemotherapy to survive? Tough luck.


Insurance companies can drop you in the middle of treatment if you reach your annual policy renewal date.

Insurance companies will not cover a person with a chronic illness. If you have a chronic illness, you will not be able to find an individual insurance plan at any price. Your only choice is to find a job that includes health insurance.

Obamacare addresses a number of these issues, but it's nowhere near perfect.
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Old Oct 5, 2013, 09:31 AM   #3
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Probably it has something to do with the fact that all other types of insurance are for things that may or may not happen so you have a large number of people who pay for the insurance but never use it and thus subsidize the people who do need it. The problem with health insurance is it is harder to make money off of it since everyone is guaranteed to need health insurance at some point in time or other. The insurance companies have tried to get around this by denying coverage to people who are already sick or at high risk of something soon, but now that isn't going to be allowed to keep on happening.
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Old Oct 5, 2013, 09:37 AM   #4
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Maybe such an over percentage of billing more than what it should be for things like a simple MRI is part of the problem. I'm clueless about medical billing, but isn't overcharging a common practice?
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Old Oct 5, 2013, 09:41 AM   #5
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Originally Posted by LIVEFRMNYC View Post
Maybe such an over percentage of billing more than what it should be for things like a simple MRI is part of the problem. I'm clueless about medical billing, but isn't overcharging a common practice?
You mean like hospitals that charge 20 bucks for a Tylenol?
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Old Oct 5, 2013, 09:56 AM   #6
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One difference is that when you insure property, your premiums depend on the choices YOU made when you acquired the property: A big house, a fast car, or a fancy boat come with higher risk and higher premiums, but it's YOUR choice. If the premiums are too high, you have a way out.

It's different with health insurance because (outside of risky behaviors like smoking or excessive drinking) nobody chooses to have expensive illnesses. They just come along.
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Old Oct 5, 2013, 09:56 AM   #7
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Originally Posted by LIVEFRMNYC View Post
Maybe such an over percentage of billing more than what it should be for things like a simple MRI is part of the problem. I'm clueless about medical billing, but isn't overcharging a common practice?
Yes it is. And the reason it happens is because insurance companies always underpay. For example: If a surgeon charges $800 for 10 hours of his service (assuming that's a correct amount), the insurance may only reimburse him $300. So he bills $1600 instead knowing he will be undercut severely.

It's obviously more intricate than that, but that's the issue in a nutshell as I've had it explained to me by my professors at school.
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Old Oct 5, 2013, 10:02 AM   #8
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Yes it is. And the reason it happens is because insurance companies always underpay. For example: If a surgeon charges $800 for 10 hours of his service (assuming that's a correct amount), the insurance may only reimburse him $300. So he bills $1600 instead knowing he will be undercut severely.

It's obviously more intricate than that, but that's the issue in a nutshell as I've had it explained to me by my professors at school.
This is true. Insurance companies have set expected costs for every type of treatment. If a healthcare provider bills more than that expected amount, the insurance company does not pay the full bill. Most of the time the provider (the hospital, doctor, etc.) accepts the lower amount. If they don't, you pay the rest out of pocket.
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Old Oct 5, 2013, 10:11 AM   #9
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Quote:
Originally Posted by SLC Flyfishing View Post
Yes it is. And the reason it happens is because insurance companies always underpay. For example: If a surgeon charges $800 for 10 hours of his service (assuming that's a correct amount), the insurance may only reimburse him $300. So he bills $1600 instead knowing he will be undercut severely.

It's obviously more intricate than that, but that's the issue in a nutshell as I've had it explained to me by my professors at school.
From my experience it doesn't work exactly as you describe reimbursement.

The insurance company determines the reimbursement for a particular procedure code. No matter what the provider bills, the reimbursement doesn't change.

If an insurance carrier allows $300 for a particular procedure code, no matter what the provider charges...$800, or $1600, or$1,000,000...all they will receive is $300. So the surgeon in your example would not inflate their charge, but rather inflate the procedure code.

Now, what this can lead to is "procedure inflation"...that is, sending in a procedure code for a more highly reimbursed procedure.

What the surgeon in your example would do is not inflate the fee submitted (which would not increase the reimbursement), but rather inflate the procedure code submitted...a procedure code with a higher reimbursement. So instead of billing for a simple appendectomy, the surgeon might submit a code for an appendectomy complicated by rupture, peritonitis, and so on, which would be reimbursed at a higher level than the simple appendectomy actually performed.
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Old Oct 5, 2013, 10:14 AM   #10
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Quote:
Originally Posted by SLC Flyfishing View Post
Yes it is. And the reason it happens is because insurance companies always underpay. For example: If a surgeon charges $800 for 10 hours of his service (assuming that's a correct amount), the insurance may only reimburse him $300. So he bills $1600 instead knowing he will be undercut severely.

It's obviously more intricate than that, but that's the issue in a nutshell as I've had it explained to me by my professors at school.
Interesting. Any reason for this?
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Old Oct 5, 2013, 10:15 AM   #11
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A car doesn't crash by itself. A house doesn't set itself on fire. Personal possessions tend to be fine until the actions of somebody causing consequences.

People die regardless of what we do.
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Old Oct 5, 2013, 11:20 AM   #12
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Quote:
Originally Posted by Shrink View Post

So the surgeon in your example would not inflate their charge, but rather inflate the procedure code.

Now, what this can lead to is "procedure inflation"...that is, sending in a procedure code for a more highly reimbursed procedure.

What the surgeon in your example would do is not inflate the fee submitted (which would not increase the reimbursement), but rather inflate the procedure code submitted...a procedure code with a higher reimbursement.
I think that there is another reason that I haven't seen mentioned so far. The thing that people fear most is a huge, open-ending, bankrupting illness. But, people who have such illnesses usually don't have a single $1M operation. They have symptoms, see a doctor, get some expensive tests, get a cancer diagnosis, get an expensive operation, and then get weekly followup expensive treatments, more expensive tests, etc. Somebody in the doctor's offices, hospitals, and labs need to account for all the services that are consumed because there really is no other way to do it-- figure out who has consumed $2000 worth of services, $20000, or $200000. Then somebody on the insurance company side has to validate all those same charges. There is an accounting step inserted at each step in the process.

At every step, it "only" adds some number like 10% to the bill, but, we know from comparisons with other countries that the "net, net" result is that the overall cost is roughly doubled.

Oh, and that $20 ibuprofen or $100 cannula? A result of accounting methods that apportion overhead to equally to each billable item. Same method results in the $500 hammer for DoD.

I don't believe that there is an easy fix for any of this. Every healthcare delivery system has a downside, and, they are all going to be expensive.
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Old Oct 5, 2013, 01:28 PM   #13
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Quote:
Originally Posted by Shrink View Post
From my experience it doesn't work exactly as you describe reimbursement.

The insurance company determines the reimbursement for a particular procedure code. No matter what the provider bills, the reimbursement doesn't change.

If an insurance carrier allows $300 for a particular procedure code, no matter what the provider charges...$800, or $1600, or$1,000,000...all they will receive is $300. So the surgeon in your example would not inflate their charge, but rather inflate the procedure code.

Now, what this can lead to is "procedure inflation"...that is, sending in a procedure code for a more highly reimbursed procedure.

What the surgeon in your example would do is not inflate the fee submitted (which would not increase the reimbursement), but rather inflate the procedure code submitted...a procedure code with a higher reimbursement. So instead of billing for a simple appendectomy, the surgeon might submit a code for an appendectomy complicated by rupture, peritonitis, and so on, which would be reimbursed at a higher level than the simple appendectomy actually performed.
It's kind of a game though isn't it? Every few years Medicare and the insurance companies come out with some new procedure codes for roughly the same procedures and stop reimbursing for the old ones.

Not surprisingly the new recommended codes all end up paying a little less than the old ones did. Then doctors have to figure out how to eke back their livings by finding which of the myriad of new codes will be reimbursed closest to the old rate.

Wait a few years and repeat.

It's a terrible system, especially for doctors whose primary income is from Medicare such as geriatricians because they can't pass along the uncovered balance to anyone.

And now the healthcare system is going to be blessed with the ridiculously overcomplicated ICD-10 next fall
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Old Oct 5, 2013, 01:41 PM   #14
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One can put a replacement value on a car, house, work or art, etc. and insure it appropriately.

What is the "replacement" value of a human life? At what cost of preserving that life do we cap expenditure? (I don't have an answer)

Apples and oranges

And the reason we news universal healthcare (medical/psychiatric/dental) in the US
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Old Oct 5, 2013, 01:53 PM   #15
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Another part of the problem (in my opinion of course) is the USA's constant demand for both cutting edge technology/treatment and creature comforts in our healthcare. It's the American way, we have a problem with not being the worlds best at everything we do; military is another great example.

We are unwilling to tolerate even minor side effects, I see people give up on inexpensive, but still life saving treatments in favor of a more expensive drug because the cheaper drug gives them a headache or something. They don't care or really even think about the costs because the insurance picks up the tab.

Additionally, people expect flat screen TV's, leather upholstery, and a private room with a view when they are hospitalized. These things all cost money too, and the hospitals have to go along with it if they want to stay open.

We've done a lot of this to ourselves.
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Old Oct 5, 2013, 02:23 PM   #16
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You mean like hospitals that charge 20 bucks for a Tylenol?
It cost me a helluva lot more than that for a dab of salve and a gauze wrapping when I sliced my hand open and had to run to the emergency room. A basic dressing of the wounds with materials I could buy from the CVS down the street from my house cost me $2000.

And I had to pay it all because I was between insurance companies at the time.
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Old Oct 5, 2013, 03:21 PM   #17
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It's kind of a game though isn't it? Every few years Medicare and the insurance companies come out with some new procedure codes for roughly the same procedures and stop reimbursing for the old ones.

Not surprisingly the new recommended codes all end up paying a little less than the old ones did. Then doctors have to figure out how to eke back their livings by finding which of the myriad of new codes will be reimbursed closest to the old rate.

Wait a few years and repeat.

It's a terrible system, especially for doctors whose primary income is from Medicare such as geriatricians because they can't pass along the uncovered balance to anyone.

And now the healthcare system is going to be blessed with the ridiculously overcomplicated ICD-10 next fall
As a practitioner whose entire practice is Medicare in Nursing Homes...it is a gigantic pain in the butt, and the reimbursement is horribly low, to say the least.

Since you can't balance bill the patient, you hope they have some supplementary insurance as a secondary payor. Since, at best, my patients have Medicaid as secondary payor...the cost of balance billing pretty much is the same as the reimbursement.

Whatever it's shortcomings, a UK/Canadian single payer system would be far superior in so many ways. But it won't happen in the US...the insurance companies are too strong to allow it.
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Old Oct 5, 2013, 03:45 PM   #18
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Health care is not as well fit for private investment as other types of insurance. The frequency of insurance claims are more, and I would argue good health care means proactive preventive care, which costs resources. In other terms, providing good care and making profit isn't always easy...and in the US, you are dealing with a lot of unhealthy people whom require more care, more intense care, and more involved care. Simultaneously, the cost of medication has reached points that are just UNREAL. So something has to give.

A few organizations have managed to make the business profitable while simultaneously offering excellent care. Kaiser is really a leader on this list, but they use a rationing model that is very different from most, they push very hard with preventive care as a cost-control mechanism, and they concentrate their care facilities into large multi-role facilities. Unlike other companies, they use almost all generic medications as a cost control component, which some people do not like. Nonetheless, their care is considered to be reasonably good to excellent, and their cost in many areas is literally a fraction of other HMOs.

The questions as to how not to go deep into the hole, but also give good care, is a question that plagues many countries to this day. There are a lot of issues with health care in the US. Realistically, it is impossible to say how the ACA is going to impact them until it's found first hand. But what is undeniable is that the US is in a health care crisis, and there really hasn't been a lot of progress made. So what happens with the new legislation will be interesting to see.
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Old Oct 5, 2013, 09:28 PM   #19
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Insurance only works well the insurer charges premiums higher than expected losses.

That's a problem for health insurance because it's immoral to ask a very sick person to pay an unaffordable amount or die. Many illnesses are not preventable, and your health can suddenly deteriorate. It's not like choosing to live in a house expensive enough to warrant a pricy homeowner's insurance policy.

The problem is magnified in the US because:

-The US has the most expensive prescription drugs in the world because we have no price controls.

-Malpractice insurance costs are sky high for doctors here, and they keep rising. That cost gets passed on to patients.

-Other countries don't have the fragmented system we do which requires so much administrative overhead for billing and administration.

-We have an obesity epidemic.

-We have a ton of baby boomers who are reaching or about to reach retirement age.

-You are also paying for the profits health insurers need to make.

The system has so many problems on so many levels that there is no easy solution. I'd much prefer single payer, but I won't be holding my breath for that one.
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Old Oct 6, 2013, 12:18 PM   #20
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One of the problems with health insurance is that health care is not something that can easily be said 'No' to. Unlike car insurance, or home owners insurance, there is always the opportunity to walk away from a claim or accident. If your house gets burned down and you don't have fire insurance, you can move to a rental and start again. However, if you get cancer, your choice is either between paying or death. There's not a plan B.

The ability to walk away keeps costs down. In health care, it becomes a SHUT UP AND TAKE MY MONEY situation because the customer can be faced with death. that allows health care providers to jack up prices as they please because when it's a choice between death or declaring bankruptcy, people will always choose bankruptcy.

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Old Oct 6, 2013, 10:25 PM   #21
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Health insurance (worked) perfectly fine.

You cost the system more, you are charged more.
You want a high deductible and low premium? Sure, go for it.

Sadly Obamacare is DESTROYED this system for something that will cost 99% of the population more so that 1% can save money.
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Old Oct 6, 2013, 10:48 PM   #22
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Sadly Obamacare is DESTROYED this system for something that will cost 99% of the population more so that 1% can save money.
Evidence? Pfft. I don't need no stinking evidence. I feel it in my gut.

...and my gut's never wrong.
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Old Oct 7, 2013, 01:51 PM   #23
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Thanks to everyone who's replied, Iíve read every post at least twice. Let me try to summarize your ideas and pose a few more:


The need for healthcare is not optional. Everyone has a body and no one wants to be sick. Even those healthy enough to put it off, get into accidents or eventually age into needing it.

This wasnít an issue 500 years ago because people with sickness and injury died. Or if they managed to survive, they made do. Expectations for length and quality of life are now much higher and we have the option not to make do or die.

Other insurances are proportional in cost to the value they provide. A person who is worth more, spends more on a house/car/boat and can spend more on insurance to protect it. A person who is worth less (who makes less) may cost even more to advance their health to the same level (say the ability to walk or breath without pain).

Our adversarial systems, so effective in lowering costs in other markets, actually increase the costs of providing health care.


Its suddenly clear to me why this is such a contentious issue. The very factors at play run into how we see people, the world, government, and business. The same factors at the heart of every political conflict since the dawn of time.
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Old Oct 7, 2013, 03:11 PM   #24
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If we could only stop beating about the bush and admit that a poor person's life is worth a tiny fraction of a tycoon's, we would stop skewing all the actuarial computations.
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Old Oct 7, 2013, 03:24 PM   #25
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Health insurance (worked) perfectly fine.

You cost the system more, you are charged more.
You want a high deductible and low premium? Sure, go for it.

Sadly Obamacare is DESTROYED this system for something that will cost 99% of the population more so that 1% can save money.
Source?
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